🤖 Big tech's mid-life crisis

Hey hey, happy Monday!

Tech stocks are off to their worst start vs. the rest of the S&P 500 in over two decades, and the Magnificent Seven CEOs are collectively going off the rails.

A 5-minute read on why big tech CEOs’ actions are emblematic of a deeper, more concerning shift at the biggest companies on the stock market.

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What’s your excuse now?

Somebody needs to check on the men of the Magnificent Seven.

Mark Zuckerberg has decided to go full Gen Z with a broccoli haircut, a gold chain and a $900,000 watch. Jeff Bezos is now a bulked-up former book nerd with new arm candy. Jensen Huang is signing body parts. Elon Musk is hacking the federal government (side note: paws off my social security number, bro!).

Some could say this is a sign of the top for tech. I…don’t disagree?

I would never say a group of stocks has peaked on vibes alone, but it is giving excess, froth, and “let them eat cake”.

But I do think these antics are emblematic of a much deeper shift in these dominant companies.

Slowly, but surely, big tech is going through a mid-life crisis. 

You hit a certain age, and suddenly you’re lusting over a motorcycle, a leather jacket and a hideous tattoo you’ll regret in a few years. You just want to peel down the highway, move to a new town, and take on a whole different image, just to feel something as you enter your later years.

That, but for the splashy leaders in Silicon Valley — and their trillion-dollar companies.

After a decade plus of rapid innovation and impressive growth, big tech is scrambling to grasp this AI-fueled moment. Why? Because it’s clearly the next chapter of the tech industry, yet big tech’s most successful business strategies are stuck in the 2010s.

I can’t help but point out that all these CEOs revamping their images are in their 50s and 60s (except for Zuck, who is clearly undergoing his own 40-year-old renaissance of sorts).

It’s so obvious what’s going on here. But enough about those guys, who are always welcome to slide into my DMs for therapist recommendations. 

Companies can go through mid-life crises too. In a quickly evolving society, trends change and companies have to adapt. What made you successful 10 years ago doesn’t necessarily work today.

History is littered with the tombstones of once-dominant companies who couldn’t pivot to the next big thing.

The most notorious example is General Electric, the 130-year-old company started by Thomas Edison. Over the years, GE constantly reinvented itself, going from a company solely focused on the business of electricity to a corporate Frankenstein of jet engine production, medical tech, TV stations and an internal bank.

GE’s financial heyday was in the early 2000s, when it was the second-largest company on the stock market. But GE, despite its size and comparative advantages, completely whiffed on the coming age of information and computing. That was the death knell.

GE isn’t dead, but it’s a shell of what it once was. Its market value has been cut in half since 2000 (while the S&P 500’s market value has nearly quintupled). In 2023, it split into three separate companies, but years too late. GE is a classic case of a company that flew too close to the sun and melted away because of inertia.

Big tech’s businesses haven’t succumbed to this fate (yet).

Tech has owned our lives and our portfolios for over a decade. The numbers speak for themselves:

• The Magnificent Seven stocks – Apple, Amazon, Alphabet (Google), Meta (Facebook), Microsoft, Tesla and Nvidia – are collectively worth $17 trillion, or about 30% of the S&P 500’s total market value.

• Together, their stock prices have increased 400% over the past five years, compared to an 81% rise in the S&P 500.

• Big tech’s products capture nearly 100% of our attention every day and shape a wide swath of our perception of the world. An undeniable fact.

The market’s current obsession with tech is based on two main tenets: what is, and what’s to come.

The “what is” stance is strong. Big tech has some of the fattest profit margins and widest competitive moats in corporate America. You can’t argue with numbers!

The “what’s to come” stance, however, is fuzzier.

People tend to overlook the fact that big tech hasn’t really changed much over the past decade. The business models they built their dynasties on are still driving their financial fortunes:

• Apple generates about half its revenue from smartphones, a segment that’s declined globally for the past several years.

• Meta and Alphabet still earn a majority of their revenues from ads.

• 65% of Amazon’s revenue is overtly tied to its online and physical stores. (Prime forever, baby!)

Look, their old ways still work. But the world is changing quickly.

Thus, the mid-life crisis. The odd business endeavors – grocery store chains, movie studios, healthcare, the metaverse, spaceships, credit cards. The billionaire version of throwing spaghetti at the wall to see what sticks.

But it’s not just harmless experimentation. Consider the uproar about content moderation, regulation and DEI. The political elbow-rubbing. Scenes that you’d expect from a corporate bureaucrat, not a visionary founder who’s cooking in the lab.

Big tech is writing its next chapter in real-time, but it’s struggling to find a balance between scrappy, nimble startups and trillion-dollar behemoths pulled in too many directions.

This is the crux of the innovator’s dilemma. Companies grow so much that they can’t pivot their strategies when disruptive businesses start nipping at their heels. Your uncle can’t do a TikTok dance without pulling a muscle. Same, same.

And when you’re a publicly traded company, you’re serving two different masters. Shareholders want profits now, while the rest of the world wants innovative products forever.

Now, to be clear, big tech has a huge leg up in the AI arms race when it comes to data, cash, and brand. Apple, Amazon, Microsoft, Meta and Alphabet spent a combined $227 billion on business projects in 2024, 50% more than what they spent in 2023 (and a noticeably bigger chunk of money when you compare it to sales).

I don’t want to discount the power of scale, either. These companies have billions of users and more data on you than you could ever imagine. 

But this race ain’t over yet. Not by a long shot. DeepSeek’s debut taught us as much.

On January 27, the tech-heavy Nasdaq 100 fell 3% as hype grew around Deepseek, a Chinese AI startup that promises to work just as well as the AI models we’re familiar with at a fraction of the cost and energy. Shares of Nvidia, the well-known maker of supercomputer chips, slid a harrowing 17% on the news, while Google shares dropped 4%.

A lot has been said about DeepSeek’s potential since then, but the big question now is whether AI has skipped the spending-heavy exploration stage and moved straight to a race to the bottom. If so, the billions big tech is spending may be all for naught, and the GE-like future may be more of a reality.

Perhaps that’s why four Magnificent Seven stocks have slipped post-earnings this season, or why tech is off to its worst start to a year since at least 2000 (versus the rest of the S&P 500). People aren’t convinced that big tech owns this AI story yet. And you know what? I think they’ve got a point.

Do I think this is the end of the road for big tech as we know it? Absolutely not. One – or maybe a few – of these companies will probably figure this AI thing out and rule forevermore. 

But you should care about big tech’s antics, even if you’re a “set it and forget it” investor. About a third of your S&P 500 index fund investments are along for the ride. Exposed to every fist bump, goatee, watch and political posse these CEOs are supporting in the quest to stay relevant.

Speaking of rides…for the love of God, Elon, just buy the damn motorcycle.

Thanks for reading!

Callie

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